KPMG expert: Bermuda well placed to attract private capital for infrastructure projects

  • Stephen Beatty: The infrastructure specialist from KPMG spoke at yesterday's Chamber of Commerce annual meeting

    Stephen Beatty: The infrastructure specialist from KPMG spoke at yesterday's Chamber of Commerce annual meeting

Bermuda is well positioned to attract investment for national infrastructure projects, the speaker at the Chamber of Commerce annual general meeting told a packed Gazebo Room at the Fairmont Hamilton Princess Hotel yesterday.

Stephen Beatty, who is KPMG’s leader of global infrastructure practice for the Americans and is also a partner in the global infrastructure advisory practice at KPMG in Canada, described the process of developing and redeveloping infrastructure, as well as the challenges of moving projects forward.

His biography states he has more than 20 years experience in leading major infrastructure transactions, advising both public and private sector clients globally in privatisation strategy, transportation planning, public private project (PPP) policy development and project financing.

In the public sector, he helps with project scoping, process design, process execution and negotiation with private developers. For the private sector, he advises on business strategies, financing approaches, and preparing bids related to airports and other major infrastructure projects.

“Infrastructure is more important than anyone in this room realises,” he said.

“The only time you realise how important it is, is when you haven’t got it.”

Mr Beatty explained that a nation’s infrastructure is passed down from one generation to the next. “We have been the recipients of some charismatic and courageous things from our parents and grandparents.” He illustrated the point by saying, for example, that his telephone has always worked, and the power comes on when he flips a switch.

But in this generation, infrastructure needs renewal.

Mr Beatty believes Bermuda is well placed to attract private capital to the infrastructure sector.

“You need a compelling project rationale — the right project for the right reason, that I as a lender with equity to invest can say: ‘That’s a good project, with a clear regulatory framework and process, with a clear sense of boundaries — what’s in, an what’s out.’ ” Projects have got into trouble because they’ve had “fuzzy ends on either side of this.”

However: “I really do believe Bermuda has all the prerequisites,” he said.

It is, however, in many parts of the world, more difficult to find funds and the political will to replace worn-out infrastructure than it was to build it for the first time. Additionally, pointed out Mr Beatty, some infrastructure items, such as aircraft, are easier to get replaced because of the advances that will have occurred in the interim. “No one who bought a Cavalier aircraft was thinking about 787 or a 777,” he said.

“The world changes, and changes a lot faster than we think.”

While not a panacea, infrastructure “in the short term, it is a marvellous economic stimulus,” he said. “The Government approach is: We’ve got a marvellous opportunity to build something and change the future of the country.”

However, it can be difficult to sell the idea. “It is really hard to get people to pay for infrastructure, but around the world, people are willing to pay — but only if they can see value.” In India, for example, the ownership of cellphones has boomed. “People saw value and were willing to pay,” he said.

“It is really important to remember that it is hard to see value if you are rehabilitating an asset,” he said. “It’s easier if it’s a new asset. And nowhere is this more true that in the US.”

He said replacing deteriorating highways is an example — and yet: “It will hobble the economy if they don’t figure our a way to move goods around the country.”

“The other thing people need if they are required to pay, is transparency,” he said, explaining this included transparency in procurement, pricing, and in the planning process. For those major infrastructure improvements paid for from the public purse, there would be process of determining what the trade-off would be and finding consensus for that.

In the UK, there is a political and community battle about the need for extra air capacity in the London area, and whether a new runway at Heathrow, or a new airport in the Thames Estuary is the answer. He said the two positions are “polar opposites”, and added: “It will take ten years to reach a consensus on the right thing to do — consensus on the size of the project, and getting it right.”

He and his colleagues had predicted that in 2013, there would be a blossoming of the market for infrastructure, because there were many projects in the pipeline. With 600 projects during 2012, they expected between 800 and 1,000 to emerge from the pipeline in 2013.

However, that had not occurred.

“It’s a struggle to get them out,” he said. “But eventually the jobs will happen, which is happening in the developing world.

“In Africa, the time to build their society is now. It is the first time many countries have had reasonably stable democracies,” and said economies on that continent are also stronger.

Other infrastructure issues include a major global problem: “There are not enough nuclear engineers alive to build the plans that are on the books,” he said.

“Nuclear engineers who are 70 years old are still working because their bosses are begging them not to quit!” he said. “But nuclear energy is a fact,” he said.

Another massive issue facing the world, and particularly the nation of Brazil, is the Lula oilfield, which is said to be larger than the North Sea oilfield. It is 150 miles off the coast of Rio de Janeiro.

He said: “How do you build a community to do as much of the work in Brazil (as you can) without importing all the labour?” Opening the oilfield will take 10,000 welders and a large number of ships will be required to get out to the oilfields, he said.

Mr Beatty pointed to Panama, and said the Central American nation had stated at the World Economic Forum that despite making a major effort to keep the job market closed, they were going to open their market to foreign labour “because we can’t afford not to”, he said.

Turning to Bermuda, Mr Beatty said the private sector needed simplicity, focus and transparency if they are to invest. “We say it over and over again,” he said, adding the public sector invariably sows all the seeds of success for a public-private partnership, and that is a relationship that will last for decades.

“There is one airport in Bermuda,” and pointed out that everyone in the room would only see one airport built during their lifetimes. “But the guys who do it in public private partnership do it every week.”

Regulation is another important factor. He said: “It was the key to opening up private investment for Latin America, for example.

“And in the UK the regulatory framework allowed ... infrastructure, and investors are happy with the results.”

He also pointed to Spain where public private partnerships provided for the building of roads and other infrastructure because the Government had not got funds to pay for those projects.

Investors are more interested in projects such as these because of low levels of investment return. “So large pools of capital have become available. We’re seeing that capital beginning to be recycled,” he said. The money, which comes from pension funds and insurance, means “people are saying they have money to spend”.

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Published Apr 10, 2014 at 8:00 am (Updated Apr 10, 2014 at 9:12 am)

KPMG expert: Bermuda well placed to attract private capital for infrastructure projects

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